Indonesia is a country with largest Moslem population of 200 million, making it a very attractive market for Sharia (Moslem Law) Banking.

Penetration of sharia in Indonesia is still very low, as it contributes only 4% of total Indonesia's banking asset. It is lagging behind other Moslem majority countries, like Malaysia with 17% penetration, or Arab Saudi with an even higher penetration rate.

Given these opportunities, in order to capitalize and make it happen, there are several challenges and issues faced by industry that must be addressed together by banks and regulator.

First, the lack of customer knowledge regarding the sharia product, although majority of population is Moslem. As relatively new product with different features and characteristic than conventional banking, Sharia product is hardly campaigned and educated to banking customers. Without firm understanding, it is difficult to expect customer to buy and embrace the product strongly.

Continuous customer education is a must. This task must be led by industry with support from regulator.

Second, sharia banking is still marketed using 'religious' benefits instead of 'product' benefits. People are offered to buy based on religious reasons, which is not enough to sell the product. At the end of the day, customer buys on the benefits that product could bring in, such as return, convenience, cost saving etc. Ultimately, tangible return is what people expect when buying the banking product.

Sharia actually has some benefits that are better than conventional, such as fixed- rate in mortgage, that could be marketed differently. Yet such benefit is not campaigned aggressively compared to the religious aspect. Tangible benefits should be communicated and marketed more strongly to customer.

Third, given its fast growth, sharia banking will need a significant number of sharia experts and human resources, which at present, the industry is clearly lack of. One banker said that annually banking industry needs around 8 thousand sharia resources, while the education institute can only provide four thousand resources annually. With almost 50% gap between these numbers, there will be a crisis in resources which can create an unhealthy head-hunting. Such gap should be closed in the future.

Industry must sit together to think how to accelerate the supply of human resources. Creating sharia banking education central is an initiative that could be taken by industry together. Education is an issue that must be addressed collectively among industry participants.

Fourth, it faces a challenge in liquidity, as currently financing to deposit ratio in sharia is at 100%. Although such high ratio represents how effective intermediary, it also reflects the liquidity risk faced by sharia bank in maintaining sufficient deposit to support the aggressive growth in financing. If such funding is not corrected or improved in near future, sharia banking will face a risk of a slowing down in lending growth.

Improving funding must be addressed by both of industry and regulator. Industry should find a strategic and creative way to attract more sharia - based funding. Meanwhile, regulator should help in designing regulation that could create a sustainable and long-term funding instrument.

Indonesia's Sharia banking presents a very bright future. Big market with very low penetration is the picture right now. The ability to realize such opportunity depends on how industry with support of regulator is able to address the issues pertained and to maintain the momentum.